Cinco de Mayo – 5 Things To Do Before You Exit Your Business

Cinco de Mayo – 5 Things To Do Before You Exit Your Business

Happy Cinco de Mayo! Our plan for the day includes mostly tacos, with a bit of “exit planning” knowledge sprinkled on top. In the spirit of Cinco de Mayo, we are sharing five things you as a business owner must do to exit your business successfully.

1 – Select your Exit Planning Team

Selecting advisors to work on your Exit Plan is a task that, if done correctly, will vastly increase the value of your company and therefore, increase the profits of your liquidity event. While there are many advisors, board members, and family members that assist in the Exit Planning process, the “Core Team” for an Exit includes a CPA, Financial Advisor, Attorney, and a Value Advisor. Martha Sullivan, the President of Provenance Hill Consulting, says, “Working with an owner’s team begins with a mutual understanding of each team member’s specialty”. Each member of the “Core Team” provides an owner with a unique skillset for the owner’s exit.

Learn more about how to rapidly increase your business value through a well-formed Exit Planning Team here:

2 – Mitigate Risk in the Business

No business is completely void of risk, but in order to achieve your personal and business goals, minimizing the large risks in your company is a necessary step in your Exit Planning process. Begin by identifying the risks in your business and sort them into the following categories: personal, financial, and business.

Once you identify the key risk areas in your business, you will be able to create actionable ways to mitigate these risks with the help of your Exit Planning team.

Without proper risk mitigation, your business will never be fully market ready. According to Walking To Destiny, “By simply removing risk from your personal situation, your personal finances, and your business, you increase value. Remember, any risk decreases value”.

3 –Decrease Wealth Gap

How much money would you need to live comfortably if you exited your business tomorrow? If you sold your business tomorrow, do you know how much money is it worth? The difference between what your business is worth and what you need to sustain an enjoyable third act is called a Wealth Gap. To close your Wealth Gap, you need to invest time and energy in growing value in your business long before you plan to exit. Linda Ruffenach, Founder and Chief Strategist at Execuity LLC, views closing the gap as “What you need to do at the beginning to be better prepared down the road”. Mitigating risks and utilizing the Value Acceleration Methodology will build value in your business, and therefore bridge your Wealth Gap.

4 – Research Exit Options

As a business owner, you have several options for how you would like to exit your business. Walking To Destiny describes seven of the most popular exit options in inside and outside ways. The inside exit options include: intergenerational transfer, management buyout, sale to existing partners, and an ESOP. The outside options include: sale to a third party, recapitalization, and orderly liquidation.

Researching your exit options thoroughly helps to map out much of your exit plan. If you are planning on selling to your child in an intergenerational transfer, you have time to educate and document company processes while you train the next generation owner. However, if you plan to sell to a third party, all your processes must be documented with extreme precision before you go to market otherwise your company will not be sellable due to the lack of structural capital.

Learn more about your exit options in Walking to Destiny.

5 – Plan For Your Third Act

This seems like a given: what do you want to do in the next phase of your life? However, business owners have spent much of their life wrapped up in their business and most do not know what they will fill their time with after “work” is no longer their main priority. According to our 2019 Nebraska State of Owner Readiness Report, only 5.46% of owners have a written plan of what they will do after exiting their business and 26.23% have not thought about their life after business at all, let alone have a written plan prepared. Chris Snider writes in Walking To Destiny, “You owe it to yourself to plan a third act that sets you up to stay connected with your identity and excel in your new ventures, embracing who you’ve been and who you want to be”.

To see the most success out of your business exit, work with advisors who have a holistic approach to Exit Planning. A Certified Exit Planning Advisor (CEPA) will be able to assist with the personal, financial, and business components of your exit and ensure that you don not leave anything on the table in your transition. Speaking on not leaving anything on the table – there are some tacos we must go eat now.